Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jun 01 09 07:21 GMT |

Overview & economic commentary The Bank of England, the ECB, the Reserve Bank of Australia and the Bank of Canada are widely expected to hold interest rates at current levels at their respective meetings this week. Further, there may be little in the way of new announcements from the BoE, but the ECB may provide details of its corporate bond purchase scheme as well as its quarterly GDP growth and inflation forecast update. A busy week for data releases, manufacturing and service business confidence surveys, published by the UK, the US & the EU (final), are likely to extend their rising trend. In the UK, early indications from BBA data suggest that mortgage approvals may have increased to 41,000 in April from 39,000 in March, while net mortgage lending may also tick up to £1bn from £0.8bn. Of note, although these higher mortgage lending numbers are encouraging, they are still at historically very weak levels. The US data highlight is the non-farm payroll jobs report due on Friday. We forecast that the US lost 500,000 jobs in May compared with 539,000 in April, therefore considerably below the largest monthly loss of 741,000 in January. We expect the unemployment rate to have risen from 8.9% of the workforce in April to 9.2% in May. In the EU, the unemployment rate may have increased from 8.9% in March to 9% in April, retail sales may have grown slightly in April and Q1 GDP will probably confirmed at -2.5% on the quarter and 4.6% on the year in the second estimate. US fixed income markets have a break after last week's $101bn of treasury sales, which were well received. UK DMO auctions £2bn of 4.25% gilts due 2049 (Tuesday 10:30) and £3.5bn of 4.5% gilts due 2019 (Wednesday 10:30). Germany sells €4bn of 4.75% bunds due 2040 (Wednesday 10:15). Currency commentary The visit of US treasury Secretary Geithner to China over the weekend carries on today but comments that the US favours a 'strong dollar' policy and that China's treasury holdings are' safe' appear to have been ignored so far. The dollar lost more ground in Asia overnight as stock markets gained (Nikkei above 9,500) and commodity currencies firmed. $/A$ surged above 0.80 to an 8-month high. Oil is bid above $67.50 and gold cleared $980. The dollar index slipped below 80.0 and could target a move to the December low of 77.7 if bearish momentum persists into the US ISM and NFP data releases. £/$ hit a high of 1.6288 and €/$ reached 1.4199. S&P futures are up 13.9, pointing to a strong open for US stocks the likelihood of GM filing for bankruptcy later today. Next line of resistance for the S&P-500 runs at 930.0, the May 8 high. The FTSE-100 could make a push for 4,500. The UK manufacturing PMI is due at 9.30 and a 3rd successive rise would probably help to support sterling strength. €/£ may re-test 0.8700 support. Major data and events today Today UK manufacturing PMI US personal income and spending, ISM manufacturing EU-16 manufacturing PMI Australia retail sales Canada IPPI, RMPI, GDP Tuesday UK money supply, consumer credit, mortgage data EU-16 unemployment Japan monetary base Reserve Bank of Australia interest rate decision (03:30) UK DMO to auction £2bn of gilts (10:30) US speaker: Fisher (18:20) Wednesday UK services PMI US ADP employment, ISM services, factory orders EU-16 services PMI, producer prices, GDP Australia GDP Germany to sell €4bn of bunds (10:15) UK DMO to auction £3.5bn of gilts (10:30) US speaker: Hoenig (19:30) Thursday US initial claims, non-farm productivity, unit labour costs French unemployment EU-16 retail sales Australia trade balance Canada Ivey PMI Bank of England interest rate decision (12:00) ECB interest rate decision (12:45) Canada interest rate decision (14:00) US speakers: Pianalto (12:50), Dudley (13:00), Bernanke (13:45) ECB speaker: Gonzalez-Paramo (15:50) French auction of OAT bonds (10:00) Friday UK producer prices US non-farm payrolls, unemployment rate, earnings Canada labour market statistics ECB speakers: Trichet and Stark (08:50) US speakers: Rosengren and Yellen (19:15) Chart: Manufacturing confidence surveys are likely to have extended their upward trend in May